IMO an application by Horne and Vrsecky
[2010] VSC 657
•26 November 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT LIST E
No. S CI 2010 06238
| STIRLING LINDLEY HORNE and PETR VRSECKY (in their capacities as joint and several administrators of Australian Property Custodian Holdings Limited) (ACN 095 474 436) (Administrators appointed) (Receivers and Managers appointed) | Plaintiffs |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 November 2010 | |
DATE OF JUDGMENT: | 26 November 2010 | |
CASE MAY BE CITED AS: | IMO an application by Horne and Vrsecky | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 657 | |
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EXTERNAL ADMINISTRATION – Application under s 439A(6) and s 447A of the Corporations Act2001 (Cth) for extensions of convening period as fixed by s 439A(5) of the Corporations Act2001 (Cth) – Twenty companies as part of group placed into administration – Long extension of convening periods sought – Applications for extensions granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Dr A. Trichardt | Cornwall Stodart Lawyers |
HIS HONOUR:
The plaintiffs make application under s 439A(6) and s 447A of the Corporations Act 2001 by an originating process filed 17 November 2010 for extensions of the convening periods as fixed by s 439A(5) of the Corporations Act 2001 for each of the second meeting of creditors of the plaintiff companies identified in the schedule to the originating process.
On 18 November 2010, I made orders extending the convening periods for each of the 20 plaintiff companies identified in the schedule to the originating process and indicated that I would subsequently publish my reasons for doing so at a later date which I now do.
By an order of Ferguson J made on 18 November 2010, the Originating Process was referred for hearing by an Associate Judge pursuant to rule 77.05 of the Supreme Court (General Civil Procedure) Rules 2005 and if required, also pursuant to rule 16.1(3) of the Supreme Court (Corporations) Rules 2003.
The application is supported by an affidavit of Stirling Lindley Horne sworn 17 November 2010.
On 18 and 19 October 2010, Mr Horne and Mr Petr Vrsecky were appointed as joint and several administrators of Australian Property Custodian Holdings Limited (“APCHL”) and 19 other companies. All of those other companies, save one (APCH Administrators Pty Ltd), are subsidiaries, or subsidiaries of subsidiaries, of APCHL in its capacity as responsible entity of the Prime Retirement and Aged Care Property Trust (“the Trust”). APCHL also carries on business in its own right.
The appointment of Messrs Horne and Vrsecky as administrators of APCHL was validated by an order of Sifris J on 29 October 2010. That order is presently the subject of an application for leave to appeal returnable in the Court of Appeal on 13 December 2010.
Because of the retrospective validation of the appointment in relation to APCHL, the convening period under the terms of s 439A(5) for that company ended on 15 November 2010.
There was no attack on the validity of the appointment of Messrs Horne and Vrsecky as administrators to the other companies and the convening periods for those companies ended on 15 November 2010 and 16 November 2010, depending upon the respective dates of the original appointments as administrators by the directors of the companies.
This application is made after the convening periods have concluded, a scenario contemplated by s 439A(6), which provides:
“The Court may extend the convening period on an application made during or after the period referred to in paragraph 5(a) or (b), as the case requires.” (emphasis added)
In such an event, the provisions of s 439A(7) are applicable. Section 439A(7) provides:
“If an application is made under sub-s (6) after the period referred to in paragraph 5(a) or (b), as the case may be, the Court may only extend the convening period if the Court is satisfied that it would be in the best interests of the creditors if the convening period were extended in accordance with the application.”
The group of 20 companies operates a number of retirement villages at various locations throughout Australia.
The plaintiffs seek a 6 month extension of the convening periods for the second meeting of creditors in each of the Part 5.3A administrations.
I am told by Dr Trichardt of counsel, who appeared on behalf of the plaintiffs, that those persons who would expect to be the major contradictors to his application are aware that this application is being made and do not oppose it.
At the first creditors meeting of APCHL and the other companies, Mr Horne indicated that he would be seeking an extension of the convening period for the second creditors meeting of each company and no objection was raised. Only APCHL appointed a committee of creditors.
In addition, Mr Horne says that since the first creditors meeting of APCHL and the subsidiary companies, he has been in regular communication with the secured creditors identified in his affidavit and they have raised no objection to the proposed application for extension period. Two of those secured creditors, Capital Finance Australia Limited and Suncorp-Metway Limited, have security by way of registered fixed and floating charges over discrete assets of the Prime Trust which is administered by APCHL. At or about the time of the appointment of the administrators in October, those secured creditors appointed receivers and managers over the assets of the companies identified in paragraph 47 of Mr Horne’s affidavit. Another secured creditor, Bankwest, has not taken steps to appoint a receiver pursuant to its registered fixed and floating charge, perhaps because its debt is relatively small compared with the others and the sale process was apparently already under way in respect of the assets the subject of its charge when the administrators were appointed. The administrators say that one of the reasons that extensions of the convening periods are required is that to interrupt the sale process currently being undertaken by the receivers would be disadvantageous to the creditors of the companies.
Mr Horne says that he is presently unable to properly investigate the affairs of the companies and form an opinion as to the options available to creditors, including venturing an opinion as to which option is in the best interests of the creditors within the period limited by s 436A(5) of the Act.
Because of the appointment of the receivers and managers, Mr Horne also says that he has not been able to provide any meaningful or comprehensive report to creditors as required by the Act for the purpose of consideration by the second meetings of creditors.
Mr Horne says that until such time as the receivers evaluate the assets and complete the realisation process pursuant to their appointments, he will be unable to provide any proper analysis of the companies’ affairs. He says that on the basis of what he has been informed by the receivers appointed and on his own professional judgment, he considers that it will take at least six months for those receivers to evaluate the assets, complete valuations and market and sell the assets. It is only when this has occurred that the quantum of the surplus assets available for unsecured creditors will be known and he will be in a position to report to creditors and make a recommendation. Mr Horne says that there is a reasonable prospect of a surplus of assets resulting in a return to creditors of possibly 100 cents in the dollar and a return to the unit holders in the Trust.
Mr Horne says that in order to ensure that the receivers have an opportunity to sell the retirement villages owned by the companies for the highest possible value, every opportunity should be given to acquire the management rights for the retirement villages, which will result not only in an improvement in the value which would be realised from their sale, but result in the best possible chance of the residents of the retirement villages not being displaced.
The application of s 439A(6) has been the subject of numerous authorities which I need not canvass here. The general expectation is that time limits applicable under the provisions of Part 5.3A are expected to be complied with and unless good cause is shown, the Court will not permit them to be departed from. “Good cause” in that context is that it must be such as to promote the objects of Part 5.3A as set out in s 435A, which is to maximise the chances of the company, or as much as possible of its business, continuing in existence or, if continuation is not possible, to achieve a better return for creditors and members that would result from an order that the company be immediately wound up.[1] When considering an application for extension, it must be borne in mind that the moratorium provisions of the Part operate to prevent creditors and others from exercising rights they would otherwise be entitled to exercise while the administration continues.
[1]See Lombe v Australian Discount Retail Pty Ltd [2009] NSWSC 110 at [16].
It is obvious from reading Mr Horne’s affidavit that the administrations are complex and an extension of time for the convening period is warranted. In these circumstances, the evidence is that those most affected by such moratorium do not oppose an extension of the convening periods. The orders proposed by the plaintiffs provide a mechanism for other persons who might be affected by the orders to apply to the Court pursuant to the liberty to apply reserved in the orders to vary the orders which I propose to make.
Although the extension which is applied for is substantial when one compares it to other decisions dealing with s 439A(6), there is no doubt that the exercise of balancing the requirement of a prompt outcome for creditors against the most beneficial one for them can warrant such a lengthy extension. In my view, the current application is just such a case. In my view, there is no point at all, if the creditors’ interests are to be considered, to forcing on a meeting of the creditors at this time or on any occasion earlier than that sought by the plaintiffs. I am satisfied to the standard required by section 439A(7) that such extensions are in the best interest of the creditors of the companies.
I will make orders of the type proposed in the Originating Process. The terms of s 439A(6) are such that that section can be employed to extend the convening period despite the fact that the convening period has expired. As regards the second order, that the second meeting may be convened and held at any time during the period comprising the convening period and the period five business days thereafter, I make such orders pursuant to s 447A(1) pursuant to the referral order of Ferguson J mentioned in paragraph 3 above. This type of order, sometimes called a “Daisytek order”[2], is routinely made in these types of applications.[3] In the event that any person can demonstrate that these orders should be varied, I have made provision in the orders for such a person to be able to approach the Court pursuant to liberty to apply reserved in paragraph 5 of the orders.
[2]See Re Daisytek Australia Pty Ltd (2003) 45 ACSR 446.
[3]Lombe v Australian Discount Retail Pty Ltd [2009] NSWSC 110 at [33], [34].
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